3 Big Banks Making a Big Move Into Payments

When it was announced last spring that clearXchange, a money-transfer platform, would be teaming up with the likes of Wells Fargo (NYSE: WFC) , Bank of America (NYSE: BAC) , and JPMorgan Chase (NYSE: JPM) , it seemed too good to be true. The super-convenient system whereby bank customers transfer money quickly and securely by mobile phone has been tested in Arizona over the past year, and Wells Fargo has recently announced that the service is now available to all of its customers.

Could be a game-changerThe new system, dubbed Send and Receive Money, makes it simple for bank customers to send money to other customers in the system. The mobile-transfer product requires only an email address or cell-phone number to send money without mentioning critical information, like account numbers. That last part is a great enhancement over ING Group's (NYSE: ING) similar service, which has been around for several years and allows customers to transfer money to anyone with a domestic bank account. The difference here is that with ING, you must know the recipient's bank account number, something that customers are not always comfortable sharing with others.

eBay's (Nasdaq: EBAY) PayPal claims that it offers similar banking services as Send and Receive Money, allowing for direct transfers between bank accounts, as well as a service in which the company sends money to recipients immediately, and then is repaid by the bank. But one possible advantage of the bank's new service is that customers won't need to set up a PayPal account at all, as is often the case to use PayPal's features.

The participation of these three banking titans brings nearly 40% of the banking public to the table, where they can register for this new service with their host bank and then transfer funds to their hearts' content. Currently, only Wells Fargo and Bank of America are participating, and JPMorgan is scheduled to come on board at a later date. ClearXchange is eyeballing the other 60% of bank customers who will not be covered by this new system as well, and it's looking for ways to expand the services to other banks, thereby squeezing out other rivals.

Fool's takeThe ease and security with which this new system works should definitely be a big hit with bank customers, and the three banks should have no trouble getting people to join up. Obviously, the idea is to make money from this venture, which I see happening in a few ways.

Now free, the service may eventually require a fee to use -- as so many previously complimentary bank services have done over the past few years. Alternatively, the banks may consider the idea of having consumers sign up at their banks to enroll in this new service, thereby opening up new accounts that may have their own fees attached, to be enough of a payoff.

Lastly, since the venture is supported by these three banks alone, they may be planning to charge other banks that join the service some sort of membership fee. They have some plan to make money, I'm sure of that. On the face of it, though, this new option seems convenient, consumer-friendly, and, so far, free -- and that's hard to beat.

Mobile payments are a growing concern, and Wells and B of A are showing some great innovation in this field. If you'd like to see how you, too, can profit from mobile technology in The Next Trillion-Dollar Revolution.

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The biggest problem with all of these "super-convenient systems" is that it is now "super easy" for tech savy criminals to hack into bank accounts, credit card accounts and debit card accounts. Furthermore, it speaks loudly to a completely cashless society. As we march forward into this with no concerns, what would happen for example, if all connections were suddently broken? I think it would be a disastorous situation.

What would happen in a completely cashless society is all the connections suddenly broke? Probably same thing that would happen today, right now, if all connections suddenly broke.

Forget about the future of a cashless society. If you needed to withdraw physical money from the bank tomorrow and everything just broke, how would the bank be able to verify that you are who you say you are (that you are an account holder with money in the bank)? Everything already is electronic (minus the actual physical dollars and coin part). Savings accounts, checking accounts, retirement accounts... already just Ones and Zeros in a computer database somewhere.

Completely cashless society or what we have now? Doesn't make that much of a difference, really (in regards to the example you gave).

My advise for your worry (which is a completely-valid worry): Invest in a good cyber security stock. As we march further down the road of the inevitable cashless society, we're definitely going to need more cyber security. I'd recommend Booz Allen Hamilton (NYSE: BAH). Just declared a special dividend of $1.50 to go along with their normal $0.09 quarterly dividend. Ex-dividends June 7th for both special and quarterly.

What would happen to a completely cashless society if all the connections were suddenly broken? Probably the same thing that would happen now, today, is all the connections were suddenly broken.

Forget about the future of a cashless society. If you needed to withdraw actual paper bills and metal coins from from a bank tomorrow and all the connections suddenly broke, how would the bank be able to verify that you are who you say you are and that you have the amount of money in the bank that you claim to have? Everything already is electronic. Your checking account, brokerage accounts, retirement accounts... they are already just Ones and Zeroes in a database somewhere.

We're already there. I don't carry much cash on me at any one time. I prefer to use my credit card for everything I can or withdrawing money from an ATM for things I can't. If all the connections everywhere suddenly broken, I'd probably have money issues. Though if everything broke everywhere, even the people with physical money in their pockets would be having issues.

My advice for your worry (which is a completely-reasonable worry): Invest in a good cyber security stock. As we continue down the inevitable march to a completely cashless society, we'll need more cyber security (already do need more cyber security now, but even more in the future). I'd recommend Booz Allen Hamilton (NYSE: BAH). Just declared a $1.50 special dividend to go along with their $0.09 quarterly dividend. Both ex-dividend on June 7th.

Paypal has a completely unnecessary link in the online payments chain for far too long.

Paypal is nothing but a skim between consumer and merchant due to the lack of a solution by the banks as mentioned in this article.

Who wants Paypal? It's unregulated, governed by a software TOS and has been forced on merchants and consumers through it's evil step sister, eBay.

If I could cut Paypal and their predatory system out of my online payment chain, I'd be the first in line but the banks and Visa and Mastercard will have to work together to put Preypal out of business.

Ask a PayPal Japan user (me, for example) just how 'unregulated' PayPal is (meaning: the government regulates the hell out of it). I wish PayPal in Japan was this wild west of payment services you are describing. I wish it was more like the US version. That would be awesome.

You can probably ask European users about PayPal regulations as well.

@corkbouy

You realize you've Green Thumb-ed eBay and written a positive CAPS pitch just three months ago, right? Lol.

I've worked for two of the three banks mentioned and I can tell you that the banks don't care about you. All they care about is making money off of you. Wells Fargo is the worst of them. It is a terrible place to work and even more terrible to the customers. Watching people get hit with fees all the time and always having to try to sell a product to every customer is horrifying. There is even a special button employees have to hit to tell them what to sell to the customer. If the employee doesnt hit the button and sell the product a report is printed out and the employee is put on corrective actions. Wells Fargo is a horrible corrupt company.

Wells fargo is an exceptonally evil corporation and that is saying a lot considering the actions and greed of the banks as a whole.if the people only knew the extint of the greed and torture wells fargo creates from how they rape and enforce impossible interest rates here in america to the mines of the congo where wells fargo finances tin to be mined by 5 and 6 year old kids stuck thousands of feet underground for weeks at a time so nokia can make high dollar smart phones for cheap.wells fargo is one evil place that I think everybody will sit by and watch as they twist and burn in that special place hell has witing for the most evil of man